How in the world do you track
all these rental property expenses and can you do
it for free or do you have to pay an arm and a leg? That’s today’s
episode, everyone. Let’s dive into it. Hey, everyone. I’m Clayton Morris. I’m Natali Morris. We are longtime real
estate investors, and we in the beginning kind of
started out duct taping things together, figuring out how
we were going to do it. We had a whole bunch
of different things, things on paper, things
on computer files. And then finally we
got our act together. And that brings us
to today’s show, because John Poston
sent in a nice email, and I’ll read it to you here. He says, hello, Mr. Morris. He didn’t mention you. Well, then I’m going to– I don’t have to
answer this question. I’ll go take a break. Right. [INAUDIBLE] Hello, Mr. Morris– and I’ll
include and Mrs. Morris– I just finished watching your
and Mrs. Morris’s video– See? Oh, he did mention you. OK. about preparing
for tax time. I’m doing tons of
research and just can’t decide on a software to use
that offers the best features to track all expenses
for rental properties. My wife and I are very curious
as to which program or programs you and your wife use. OK. Great question, John. Thank you for the email. So I’ll turn it
over to Mrs. Morris. OK. So here’s how we used to
do it, is Clayton went off and bought real estate, and
then he came back and handed me the bills. Right. And I was, like– This is true. –what is this? I never knew about this, right? And it was, like,
this contractor bill, and here’s the property tax
payment and all of that stuff. Here’s a furnace that
we bought, right. Right. And I had no idea
how to make sure that those were taxable
deductions or any of that, right? So what I started
to do was to track the expenses of the
property the same way that I did the properties
that we lived in. I just created a simple
statement of cash flows for each property. And that worked for
us for a long time. Now, now we own several
dozens of properties. So I don’t do it
that way anymore, because it just got too
tedious to go one by one. So we do actually
use QuickBooks, because a lot of our
different businesses flow through our personal
social security numbers. And it gets hard to assign
what thing to what thing. But when we were
getting started, when we first just had a
handful of rental properties, what I did was keep one
spreadsheet per property. So I think for most people, this
is a great way to get started. We have this as a free download. Yeah. Let’s take a look at it
here, because, again, we now use QuickBooks, because
we have a lot of properties. And we have a bookkeeper that
handles a lot of things for us. But if you’re just getting
started, what would you say is the threshold? Like, 10 properties, you
can use this spreadsheet? 20 properties you can
use this spreadsheet? Yeah. I think it was fine to
have it for 10 properties. For 20, it’s too hard. I suppose you could take
it and duplicate it. Well, one thing you
could do, instead of having one
spreadsheet per property is have one
spreadsheet per year, and then keep the
properties in tabs, right? So 123 Main Street
has its own tab and then 456 John
Street has its own tab. You could do it
that way as well. And I think that makes it
very easy for me to see– that’s why I really
like the sheet– is to see what’s coming
in and what has been paid. And it’s all in one place,
because for any given property, there’s like a couple dozen
transactions for the year, right? It’s not like your
primary residence where you’re, like, well, I need
to pay for salt for the water heater, whatever. Yeah. Let’s take a look at
this spreadsheet here. We’ll put it up on the screen,
and let’s go through exactly how this is broken down. So in the description
below, we’ll have a link to get free
access to this spreadsheet. So you can download
it, use it yourself, tweak it, modify it
however you like. But the free download
is available for you to grab and to put
it into practice. Right. So we start with– I mean, it’s pretty
easy spreadsheet. You know, it’s got
the formulas built in. Don’t mess up my formulas. That makes me mad. Don’t do that. And don’t change
the format either. It really bothers me– I put this on Twitter recently–
when people type numbers into a spreadsheet,
but they don’t go through the motions
of actually making the format either a date or a
currency or a decimal point. All right. Get back to the spreadsheet. OK. Stop complaining. That makes me mad. Stop it. OK. Get back to this spreadsheet. OK. So you’ll see here you start
tracking rental income, right? So you just put every single
date when your rent comes in. Put the date that you had it. You put rental income, clearly. And then the amount,
and that’s it. So I always put
the gross amount, because we’re subtracting
the net amount later, right? So put in what actually came in. This gets a little
tricky, because a lot of times your property
manager doesn’t charge you. They keep the money back, right? So you may make $700
in rent, but they keep 10%, which is $70. So you only ever get
in your bank account, let’s say $610, right? But I still write in
there the gross amount, because in essence
I did pay that $70, even if I never saw it. OK. Right. So write down the total
amount of rent and then below, I put in expenses. So you may pay the
insurance company, right? Write down the property
management fee. There again, even if
you never paid it, you want to account for it. And then this is where I keep
track of any other expenses, like did it need a furnace? Did it need a roof? Did it need whatever, right? Taxes I track separately,
just because I– you don’t have to it. Is an expense. I like to do it that way,
because it gives me an easier idea of what the taxes are. Also I can see it easier,
because a lot of places charge me spring and fall. And I want to make sure I
have those both there, right? It triggers something if I
see that it’s not been paid. It’s pretty easy. And then in the end,
you just sort of can total up what that
property made for the year. Boom. Easy. Right. And you have that tax
information in there. Remember to check
out the video we just did on how to fight your tax
assessment, if you need to. So that can be useful too
to lower your overall taxes on that property. So great. It’s all right there
in that spreadsheet. Super simple. And that’s really all we use. We also use Dropbox,
and sometimes we use a Google Drive,
you know, for kind of sharing files
or keeping receipts or that sort of thing in there. But honestly, that’s
really the only repository. I mean, this spreadsheet
kind of catalogs everything. But then you want to have
a record of your receipts somewhere, whether it’s digital
or whether, as Tom Wheelwright likes to say, you
better have, what, how many years worth
of these receipts? A number of, like, three
years worth of these receipts? It’s usually seven
for an individual, and I think four
for a corporation. I might have those flipped,
but you put me on the spot. Yeah. So keep those receipts, though,
and if you put them in Dropbox or use iCloud Drive or
you use Google Drive, make sure you have
digital copies of receipts when you buy that furnace,
when you pay that roofer. Keep all of those things
inside of a folder. So the way I do it is I
keep the name of the holding company as a Dropbox
folder and then a subfolder underneath that
is the property name and then a subfolder underneath
that is the year. So then everything that I
paid that year, the furnace receipt, the tax bill,
everything goes into that year 2018, right? And then if I’m ever
audited, I’ve got it. Now, where this sheet
starts to get tough, right, is your tax preparation. Well, obviously,
this property has caused me to have some
expensive tax preparation. The lawyer fee, right? The fee for the LLC, if it’s
shared with other properties, those things got
harder for me to track. So once our estate
became too big, that’s when I then sort of
handed it over to QuickBooks, because QuickBooks can sort
of delegate your expenses a little bit easier. But this is a very crude way to
see what each property is doing without, again,
taking into account other types of, like,
high-level corporate management. Right. And that’s where you
should want to be. I hope you don’t, like, think it
rude for her to say our estate. But look– Why is that rude? No. You know what I mean. It might come across as
a little– our estate, like we’re, you know, like
Richie Rich or something. We’re not, but you should
want to get there, right? You should want to build
a dynasty for your family, build up to an estate level. Everyone has an estate,
whether you’re, like– Oh, yeah. I guess you’re right. No, she– all right. I will stand corrected. Estate is a word that
maybe has the stigma, but every single
person has an estate. Right. You have something to your name. That’s true. Even if you own nothing,
that is your estate, right? An estate is just
sort of the sum total of what you as a person
lay claim to, even if it’s zero, that’s still an estate. I stand corrected. All right. Don’t jump down my throat
for using elitist words, because then I’m
really going to do it. So there you go. I hope you found
that helpful, John. And you also created
a family dispute. Once again, here on the
investing and real estate show– So you know, format your cells. If you take this
spreadsheet as a download and you break the
formulas, it’s really going to hurt my feelings. Don’t hurt Natali’s feelings. Don’t do that. Make her happy by subscribing
to this channel, where we try to help you build
financial intelligence each week with multiple shows. And you’ve got to join us
on our live shows as well. We do that once a week as well. All right. We’ll see you next
time, everyone. Now go out there, take action
and become a real estate investor. And don’t change
Natali’s formulas.